How do funds work?

There are two basic fund types: open and closed.

Open funds function according to a simple principle:

The money of many investors is pooled and, depending on the fund's strategy, distributed over a broad range of investments such as stocks, bonds or real estate.

In the case of so-called 'actively' managed funds, this is done by a fund manager. There is no fund manager for index funds (ETFs). They track an index and are therefore also called 'passive' funds.

Closed-end funds work by different rules:

As a rule, they invest in tangible assets such as real estate and aircraft, or in company investments.

The fund company issues fund units only for a limited time and often only for a limited total amount. Once all the shares have been sold, it then invests the money collected in accordance with the fund's investment guidelines.

In principle, the capital of the investors remains in the fund until the agreed term ends - hence the name 'closed' fund. The fund is then wound up, its investments sold and the investor receives the current value of his unit. Before winding up the fund, it may sell its units on the stock exchange (secondary market).

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In terms of assets under management, the BVI member companies together cover over 95 percent of the German market.

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